United States v. CNA Financial Corp.

Citations: 214 F. Supp. 2d 1044; 2002 U.S. Dist. LEXIS 25158; 2002 WL 1800989Docket: A98-285 CV (JWS)

Court: District Court, D. Alaska; June 28, 2002; Federal District Court

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CNA Financial Corporation and The Continental Casualty Company filed a motion for partial summary judgment regarding damages in a case brought by the United States concerning an incident at Jake's Place, a residential alcohol treatment facility. The government opposed this motion and cross-moved for its own partial summary judgment. The case revolves around the interpretation of two insurance policies issued to Bristol Bay Area Health Corporation (BBHAC), particularly the HMA Policy, under which the government has been deemed an implied insured. The court had previously ruled in favor of the government, recognizing its implied coverage under the HMA Policy and Continental's bad faith in denying coverage.

CNA contends that the government’s recovery should be limited to the $1,000,000 policy cap, arguing that the claims made in the underlying tort case, Wilson v. United States, exceeded this limit without a demand for settlement within the policy's boundaries. The government settled the Wilson claims for $2.8 million and claims it is entitled to recover this amount, along with additional costs, based on Alaska law. The government presents two main arguments: first, that Continental is estopped from denying coverage across both the HMA and CBP policies, which together exceed the sought recovery; and second, that the government should be allowed to recover its full damages due to Continental's bad faith in breaching its duty to defend. The court will consider the motions under Rule 56, which allows for summary judgment when there is no genuine dispute over material facts and the moving party is entitled to judgment as a matter of law.

All evidence from the non-movant must be accepted as true during summary judgment, with all reasonable inferences drawn in their favor. The nonmoving party is required to provide sufficient evidence to substantiate any factual disputes rather than relying solely on allegations. A key issue is whether Continental's bad faith failure to defend renders it liable for the full settlement amount paid by the United States in the Wilson case, despite no demand being made within policy limits. The Alaska Supreme Court precedent, particularly in Lloyd's Institute of London Underwriting Cos. v. Fulton, established that an insurer can be liable for damages exceeding policy limits due to a breach of the duty of loyalty. In that case, the insured faced a judgment of $450,000 against a $300,000 policy limit due to the insurer's failure to communicate potential policy violations in a timely manner. The court upheld the lower court's decision to award full recovery, emphasizing that even without addressing tort claims, the breach of duty warranted damages beyond policy limits. Continental argues that its actions did not cause harm beyond the denied coverage, but this contradicts public policy as outlined in the Lloyd's case. The government previously obtained a ruling that it is an implied insured under the HMA policy and now seeks coverage under the CBP Policy, but this issue is deemed unnecessary to resolve given the court's interpretation of the Lloyd's case. Continental's motion for partial summary judgment is denied, while the government's cross-motion is granted. The only remaining claim pertains to the government's request for punitive damages, and the parties must submit a joint status report by August 16, 2002, regarding further actions needed before trial or potential settlement.